http://finance.yahoo.com/banking-budgeting/article/113452/here-comes-lehman-marketwatch?mod=bb-budgeting&sec=topStories&pos=7&asset=&ccode=
Here Comes Lehman 2.0
by John Nyaradi
Wednesday, September 7, 2011MarketWatch
With Friday's Federal government lawsuit against seventeen major banks and renewed dangers in Europe, global investors now face the potential peril of two "Lehman Events" as we say goodbye to summer and slip into September.
Who can forget the shocking bankruptcy of Lehman Brothers on Sept. 15, 2008, the largest bankruptcy filing in U.S. history?
Now, as we approach the third anniversary of that shock, we were hit again with yet another big shocker as the Federal Housing Agency filed a $196 billion lawsuit against 17 banks for allegedly misleading Fannie Mae (FNMA.OB - News) and Freddie Mac (FMCC.OB - News) regarding mortgage backed securities.
The companies in the lawsuit are a stunning marquee of the biggest names in banking including Bank of America (BAC - News), JP Morgan Chase (JPM - News), Barclays (BCS - News), Citigroup (C - News), Deutsche Bank (DB - News), Goldman Sachs (GS - News), and Morgan Stanley (MS - News).
Of course, many of these illustrious names were deemed "too big to fail" at the outset of the financial crisis and so were bailed out by the American taxpayer, including Fannie and Freddie which received $140 Billion to keep them from imploding.
So after rescuing the "too big to fails," will the government now trigger the failure of one or more of these mega banks as a result of this recent action? Beyond that, isn't the irony almost palpable as the Federal government bailed out the "too big to fail" group and now may be putting them closer to the edge yet again? Or will the Fed, Congress or U.S. Treasury have to ride to the rescue of the "too big to fails" one more time?
Would either of these scenarios prove to be another Lehman event? Quite possibly.
On the international front, the Greek bailout is the chronic problem that just won't seem to go away. The deal to bailout Greece seems increasingly tenuous as German Chancellor Angela Merkel's party lost an election in her home state over the weekend. The defeat sent the euro straight south and highlights the growing divisions in Germany over the Greek bailout and its costs. This is the Merkel coalition's sixth straight loss in German state elections as German voters go to the poll and say "halt" to taxpayer money going for bailouts. But this one, coming from her home state, was particularly bitter and likely weakens her push to save Greece and the European Union.
All of the drama in Europe could come to a head later this month when the German Parliament votes on the bailout on Sept. 23. The bailout heads for a vote in late September to sixteen other Euro Zone countries, as well.
If Greece defaults, could that be a Lehman event? Most likely.
So amid all this chaos, what are investors in exchange-traded funds supposed to do?
Regarding the potential domestic Lehman event, several possibilities present opportunities:
1. You could "short" Financial Select SPDR (XLF - News) which has major holdings in JP Morgan Chase, Citigroup and Bank of America
2. You could buy inverse ETFs like ProShares Short Financials (SEF - News) which is designed to inversely track the daily performance of the Dow Jones U.S. Financials Index. Inverse ETFs can generate significant tracking error and come with several warnings from FINRA and so you need to fully understand how these work before venturing into these waters.
3. You could buy put options on financial ETFs like XLF or iShares Dow Jones U.S. Financial Sector (IYF - News), which also holds major exposure to JP Morgan Chase, Citigroup and Bank of America.
To profit from a Lehman event in Europe, ETF opportunities include:
1. "Shorting" or buying put options in Vanguard European Index Fund (VGK - News), which invests in more than 400 stocks in 16 European countries.
2. "Shorting" or buying put options in iShares MSCI EAFE Index Fund (EFA - News), which tracks the MSCI EAFE Index of companies located in Europe, Australasia and the Far East and whose top holdings include such well known companies as Nestle (NSRGY - News), Vodafone (VOD - News), HSBC (HBC - News) and Royal Dutch Shell (RDS-A - News).
Today's ultra-volatile markets and the ongoing threats of Lehman events, require investors to adjust to today's seemingly never ending financial crisis. Crisis and change are scary but they also bring opportunity and the bigger the crisis and change, the bigger the potential rewards. ETFs offer one avenue for investors seeking profits and safety as two Lehman Events now cloud the early days of September.
Here Comes Lehman 2.0
by John Nyaradi
Wednesday, September 7, 2011MarketWatch
With Friday's Federal government lawsuit against seventeen major banks and renewed dangers in Europe, global investors now face the potential peril of two "Lehman Events" as we say goodbye to summer and slip into September.
Who can forget the shocking bankruptcy of Lehman Brothers on Sept. 15, 2008, the largest bankruptcy filing in U.S. history?
Now, as we approach the third anniversary of that shock, we were hit again with yet another big shocker as the Federal Housing Agency filed a $196 billion lawsuit against 17 banks for allegedly misleading Fannie Mae (FNMA.OB - News) and Freddie Mac (FMCC.OB - News) regarding mortgage backed securities.
The companies in the lawsuit are a stunning marquee of the biggest names in banking including Bank of America (BAC - News), JP Morgan Chase (JPM - News), Barclays (BCS - News), Citigroup (C - News), Deutsche Bank (DB - News), Goldman Sachs (GS - News), and Morgan Stanley (MS - News).
Of course, many of these illustrious names were deemed "too big to fail" at the outset of the financial crisis and so were bailed out by the American taxpayer, including Fannie and Freddie which received $140 Billion to keep them from imploding.
So after rescuing the "too big to fails," will the government now trigger the failure of one or more of these mega banks as a result of this recent action? Beyond that, isn't the irony almost palpable as the Federal government bailed out the "too big to fail" group and now may be putting them closer to the edge yet again? Or will the Fed, Congress or U.S. Treasury have to ride to the rescue of the "too big to fails" one more time?
Would either of these scenarios prove to be another Lehman event? Quite possibly.
On the international front, the Greek bailout is the chronic problem that just won't seem to go away. The deal to bailout Greece seems increasingly tenuous as German Chancellor Angela Merkel's party lost an election in her home state over the weekend. The defeat sent the euro straight south and highlights the growing divisions in Germany over the Greek bailout and its costs. This is the Merkel coalition's sixth straight loss in German state elections as German voters go to the poll and say "halt" to taxpayer money going for bailouts. But this one, coming from her home state, was particularly bitter and likely weakens her push to save Greece and the European Union.
All of the drama in Europe could come to a head later this month when the German Parliament votes on the bailout on Sept. 23. The bailout heads for a vote in late September to sixteen other Euro Zone countries, as well.
If Greece defaults, could that be a Lehman event? Most likely.
So amid all this chaos, what are investors in exchange-traded funds supposed to do?
Regarding the potential domestic Lehman event, several possibilities present opportunities:
1. You could "short" Financial Select SPDR (XLF - News) which has major holdings in JP Morgan Chase, Citigroup and Bank of America
2. You could buy inverse ETFs like ProShares Short Financials (SEF - News) which is designed to inversely track the daily performance of the Dow Jones U.S. Financials Index. Inverse ETFs can generate significant tracking error and come with several warnings from FINRA and so you need to fully understand how these work before venturing into these waters.
3. You could buy put options on financial ETFs like XLF or iShares Dow Jones U.S. Financial Sector (IYF - News), which also holds major exposure to JP Morgan Chase, Citigroup and Bank of America.
To profit from a Lehman event in Europe, ETF opportunities include:
1. "Shorting" or buying put options in Vanguard European Index Fund (VGK - News), which invests in more than 400 stocks in 16 European countries.
2. "Shorting" or buying put options in iShares MSCI EAFE Index Fund (EFA - News), which tracks the MSCI EAFE Index of companies located in Europe, Australasia and the Far East and whose top holdings include such well known companies as Nestle (NSRGY - News), Vodafone (VOD - News), HSBC (HBC - News) and Royal Dutch Shell (RDS-A - News).
Today's ultra-volatile markets and the ongoing threats of Lehman events, require investors to adjust to today's seemingly never ending financial crisis. Crisis and change are scary but they also bring opportunity and the bigger the crisis and change, the bigger the potential rewards. ETFs offer one avenue for investors seeking profits and safety as two Lehman Events now cloud the early days of September.
